Morgan Stanley Hires From Merrill

Morgan Stanley, the world’s largest securities firm, on Tuesday named Merrill Lynch & Co.’s James Gorman to run its retail brokerage, a business whose slumping profit spurred the firm to begin cutting 1,000 jobs earlier this month.

Gorman, 47, starts in February, replacing John Schaefer, 53, who will leave Morgan Stanley by the end of the year. Gorman will join Morgan Stanley’s management committee and report to acting President Zoe Cruz, the firm said.

Gorman will try to revive the business after pretax profit dropped 11% in the second quarter, contrasted with a 5.1% increase at Merrill Lynch. The brokerage, which became part of Morgan Stanley when Dean Witter Discover & Co. bought the firm in 1997, trails competitors in revenue per broker and almost every measure of profitability.

“It’s a big win for Morgan Stanley,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in New York. “I think bringing Gorman into their ranks means that Morgan Stanley is going to emphasize retail brokerage, not spin it off or sell it, as had been rumored.”

The appointment was announced after the close of stock trading Tuesday, in which Morgan Stanley shares fell 64 cents to $52.96.

Gorman, who was named head of Merrill’s U.S. brokerage force in May 2000 and became president of the unit in December 2002, didn’t immediately return a call seeking comment.

He oversaw Merrill’s 14,420 brokers as head of the firm’s private-client unit until June, when Chief Executive Stanley O’Neal named him head of corporate acquisitions, strategy and research, a new position.

“James Gorman’s depth of experience and expertise are unmatched in the industry, making him uniquely qualified to lead the transformation of Morgan Stanley’s retail brokerage business,” Morgan Stanley CEO John Mack said in a statement.

Under Gorman, Merrill’s brokerage for individual investors had a second-quarter pretax profit of $457 million, earning almost four times as much as Morgan Stanley.

A native of Australia with a master’s degree from Columbia University’s business school in New York, Gorman was a senior partner in the financial institutions practice at McKinsey & Co., the management consulting company, until 1999.

He joined Merrill Lynch that year as an executive vice president and became head of the U.S. private client relationship group less than a year later.

Gorman earned $6.5 million in salary and bonus in 2004, $1 million more than the year before, regulatory filings show.